Oct 2 (Reuters) - Vanguard Group, the largest U.S. mutual fund manager on Tuesday said it was switching 22 of its biggest index funds away from benchmarks provided by MSCI Inc in order to cut costs.

Shares of MSCI plunged 22 percent on the news that one of its biggest index licensing customers had defected with shares hitting $27.86 in early trading on the New York Stock Exchange on Tuesday.

Vanguard's move comes as other managers of index funds are moving to cut costs, as well. Charles Schwab said last month that it was trimming fees on its line of exchange-traded funds to as little as 0.04 percentage points a year while BlackRock , the top ETF manager, has said it plans to announce price cuts soon.

Vanguard said it would shift six international stock funds with $170 billion of assets to track indexes from the FTSE Group. And 16 U.S. stock and balanced funds with $367 billion of assets will switch to indexes developed by the University of Chicago's Center for Research in Security Prices.

The change affects both mutual funds and exchange-traded funds, Vanguard, based in Valley Forge, Pennsylvania, said in a statement.

"We negotiated licensing agreements for these benchmarks that we expect will enable us to deliver significant value to our index fund and ETF shareholders and lower expense ratios over time," Gus Sauter, chief investment officer at Vanguard, said in a statement.

MSCI said the switch is expected to be phased-in over a number of months starting in January 2013 and covers Vanguard funds that generated annual revenue and operating income of about $24 million. The New York-based firm reported operating revenue of $901 million and operating income of $322 million in 2011.

MSCI also noted that it has many other customers and some $7 trillion of assets are benchmarked on MSCI indexes. "MSCI is a provider of a diverse set of investment-decision tools to more than 6,000 clients worldwide," MSCI Chairman and CEO Henry Fernandez said in a statement.

Vanguard's decision follows a similar move it made in 2003 to dump higher-cost indexes provided by McGraw-Hill Company's